Thursday, 1 January 2009

Is government support for ship finance and coastal shipping finally here?

Mumbai, December 23 Beleaguered Indian ship owners, seriously impacted by the credit crisis that threatens to stymie their expansion plans, have asked the government for a 10,000 crore fund to be set up to provide them low cost credit for new vessel acquisition. The proposal is now believed to be with the Finance Ministry. In separate developments, unconfirmed reports indicate that the Ministry of Shipping has mooted a 500 crore package to develop coastal shipping.

The special ship acquisition fund proposal comes in the wake of the drying up of global credit to ship-owners. As international banks become shy of giving credit to an industry in a downturn, the proposed fund is slated to help local ship owners tide over the crippling liquidity crisis. Sources say that the government may make the loans conditional on support to domestic shipbuilding, and should price the credit at 2% above LIBOR. Marex has learnt that the government is examining the industry proposals very seriously; domestic bank support will be essential, though, and it remains to be seen if they can be pressurised to step in when their foreign colleagues are clearly timid in doing so.

INSA President and SCI boss S Hajara said that the corpus should provide soft loans to Indian shipping companies to acquire ships to take advantage of falling prices of assets because of the global financial meltdown. Analysts say that SCI is in a stronger financial position than many domestic companies are; the impact of the liquidity crunch is being felt more by smaller owners who do not have similar balance sheet strength to attract softer loans for acquisitions.

Indian companies raised loans at around 3.5 to 4 % abroad until recently. Many still want to take advantage of falling asset prices and push their expansion projects. The fund should boost to these plans; before the present downturn, Indian owners had planned an outlay of USD 20 billion in the next four years for buying ships. The special fund, said Hajara, “is a drop in the ocean, but at least it is a start.”

Industry experts fear, however, that the government’s stipulation on supporting Indian shipyards may be a problem as they may not be able to accommodate new orders. Many Indian shipyards are booked for the next few years, and have suffered few cancellations compared to their Korean and Chinese counterparts.

Meanwhile, the shipping ministry is supposed to have mooted a Rs500 crore plan that develops coastal shipping and increases its market share in cargo movement. A special development fund to support coastal shipbuilding is being fleshed out. Coastal shipping operators are also hoping for subsidies and tax breaks in support of their cause.

Analysts have long pointed out that, at less than 0.15% of cargo moved, the share of inland waterway shipping in Indian cargo movement is abysmal. Coastal shipping does slightly better, at around 8%, compared to almost 40% in developed economies. Coastal ship owners have long complained of poor governmental support, bottlenecks and step brotherly treatment. An inland vessel building subsidy programme ended in 2007; ship owners are still hoping for its reintroduction. The country requires increasing its inland transport vessels to about 2500 from the present 440, as per estimates.

Industry players say that with proper support, the development of shipping along the 7500 kilometer coastline and the 14000 km of inland waterways in India could provide a major boost to the economy, besides creating thousands of direct and ancillary jobs. However, major investment in infrastructure, navigational aids, surveying and dredging is required. More importantly, analysts say, bureaucratic mindsets must change. They point out, however, that this will be money well spent, and that the advantages of a cheaper, more efficient and ecologically friendly mode of cargo movement make for a compelling argument.


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